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New analyst coverage unearths extensive data on stocks for investors. Analysts are privy to vital information which is crucial for investment decisions. Lack of information creates chances of misinterpretation of stocks (over or undervalued).
Coverage initiation on a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume that there is something special in a stock to attract analysts to cover it. In other words, they believe that the company coming under the microscope definitely holds some value.
Obviously, stocks are not randomly chosen to cover. New coverage on a stock usually reflects a reassuring future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t like to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly added stocks are more favorable than their ratings on continuously covered stocks.
Needless to say, the average change in broker recommendation is preferred over a single recommendation change.
Impact on Stock Price
The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with a new analyst coverage compared to what they witness with a rating upgrade under an existing coverage. Positive recommendations — Buy and Strong Buy — generally lead to a significantly more positive price reaction than Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
Now, if an analyst gives a new recommendation on a company that has very few or no existing coverage, investors start paying more attention to it. Also, any new information attracts portfolio managers to build a position in the stock.
So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.
Screening Criteria
Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago (This will shortlist stocks that have recent new coverage).
Average Broker Rating less than Average Broker Rating four weeks ago ('Less than' means 'better than' four weeks ago).
Increased analyst coverage and improving average rating are the primary criteria of this strategy but one should consider other relevant parameters to make the strategy foolproof.
Here are the other screening parameters:
Price greater than or equal to $5 (as a stock below $5 will not likely create significant interest for most investors).
Average Daily Volume greater than or equal to 100,000 shares (if volume isn’t enough, it will not attract individual investors).
Here are five of the seven stocks that passed the screen:
Heritage Commerce Corp. (HTBK - Free Report) is a holding company of Heritage Bank of Commerce, Heritage Bank East Bay, Heritage Bank South Valley and Bank of Los Altos. The stock carries a Zacks Rank #2 (Buy) and has rallied more than 24% in the last six months, much above the industry’s 15.2%. This stock has seen earnings estimates move up 10.9% for 2018 over the past 60 days, depicting the stock’s potential to scale higher. Full-year 2018 earnings for the company are expected to grow 27.5%, higher than the industry’s 26.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
New Mountain Finance Corporation (NMFC - Free Report) , a business development company, has a trailing 12-month return on equity of 10.3%, higher than the industry’s 8.7%. Full-year 2018 earnings for this Zacks Rank #2 company are expected to grow 7%, higher than the industry’s 2%.
Assurant, Inc. (AIZ - Free Report) through its subsidiaries, provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe and the Asia Pacific. This Zacks Rank #3 (Hold) stock has seen earnings estimates move up 6.4% for 2018 over the past 60 days, depicting the stock’s potential to scale higher. The stock has an expected earnings growth rate of 99.3% for 2018, higher than the industry’s 27.1%.
Loews Corporation (L - Free Report) , through its subsidiaries, provides commercial property and casualty insurance in the United States, Canada, the United Kingdom, Continental Europe and Singapore. The stock carries a Zacks Rank #2 and earnings estimates for 2018 have been trending upward over the last 60 days, increasing 2.9%. Full-year 2018 earnings for the company are expected to grow 22.4%.
Proteostasis Therapeutics, Inc. is a biopharmaceutical company. The stock carries a Zacks Rank #3 and has rallied more than 251% in the last six months, comparing favorably with the industry’s decline of 9.6%. Loss estimates for 2018 have narrowed to $2.08 per share from $2.34 in the last seven days.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector.Download it free »
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5 Stocks in the Limelight on New Analyst Coverage
New analyst coverage unearths extensive data on stocks for investors. Analysts are privy to vital information which is crucial for investment decisions. Lack of information creates chances of misinterpretation of stocks (over or undervalued).
Coverage initiation on a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume that there is something special in a stock to attract analysts to cover it. In other words, they believe that the company coming under the microscope definitely holds some value.
Obviously, stocks are not randomly chosen to cover. New coverage on a stock usually reflects a reassuring future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t like to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly added stocks are more favorable than their ratings on continuously covered stocks.
Needless to say, the average change in broker recommendation is preferred over a single recommendation change.
Impact on Stock Price
The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with a new analyst coverage compared to what they witness with a rating upgrade under an existing coverage. Positive recommendations — Buy and Strong Buy — generally lead to a significantly more positive price reaction than Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.
Now, if an analyst gives a new recommendation on a company that has very few or no existing coverage, investors start paying more attention to it. Also, any new information attracts portfolio managers to build a position in the stock.
So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.
Screening Criteria
Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago (This will shortlist stocks that have recent new coverage).
Average Broker Rating less than Average Broker Rating four weeks ago ('Less than' means 'better than' four weeks ago).
Increased analyst coverage and improving average rating are the primary criteria of this strategy but one should consider other relevant parameters to make the strategy foolproof.
Here are the other screening parameters:
Price greater than or equal to $5 (as a stock below $5 will not likely create significant interest for most investors).
Average Daily Volume greater than or equal to 100,000 shares (if volume isn’t enough, it will not attract individual investors).
Here are five of the seven stocks that passed the screen:
Heritage Commerce Corp. (HTBK - Free Report) is a holding company of Heritage Bank of Commerce, Heritage Bank East Bay, Heritage Bank South Valley and Bank of Los Altos. The stock carries a Zacks Rank #2 (Buy) and has rallied more than 24% in the last six months, much above the industry’s 15.2%. This stock has seen earnings estimates move up 10.9% for 2018 over the past 60 days, depicting the stock’s potential to scale higher. Full-year 2018 earnings for the company are expected to grow 27.5%, higher than the industry’s 26.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
New Mountain Finance Corporation (NMFC - Free Report) , a business development company, has a trailing 12-month return on equity of 10.3%, higher than the industry’s 8.7%. Full-year 2018 earnings for this Zacks Rank #2 company are expected to grow 7%, higher than the industry’s 2%.
Assurant, Inc. (AIZ - Free Report) through its subsidiaries, provides risk management solutions for housing and lifestyle markets in North America, Latin America, Europe and the Asia Pacific. This Zacks Rank #3 (Hold) stock has seen earnings estimates move up 6.4% for 2018 over the past 60 days, depicting the stock’s potential to scale higher. The stock has an expected earnings growth rate of 99.3% for 2018, higher than the industry’s 27.1%.
Loews Corporation (L - Free Report) , through its subsidiaries, provides commercial property and casualty insurance in the United States, Canada, the United Kingdom, Continental Europe and Singapore. The stock carries a Zacks Rank #2 and earnings estimates for 2018 have been trending upward over the last 60 days, increasing 2.9%. Full-year 2018 earnings for the company are expected to grow 22.4%.
Proteostasis Therapeutics, Inc. is a biopharmaceutical company. The stock carries a Zacks Rank #3 and has rallied more than 251% in the last six months, comparing favorably with the industry’s decline of 9.6%. Loss estimates for 2018 have narrowed to $2.08 per share from $2.34 in the last seven days.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »